The staff of the CFTC’s Division of Swap Dealer and Intermediary Oversight (the “Staff”) issued a no-action letter providing relief to operators of certain commodity pools (“Funds-of-Funds”) investing in separately managed vehicles that hold commodity interests from the December 31, 2012 deadline for registering as commodity pool operators (“CPOs”) that would otherwise have applied to them. Subject to certain conditions, the relief continues until the later of June 30, 2013 or six months from the date that the Division of Swap Dealer and Intermediary Oversight issues guidance on the application of the de minimis commodity interest thresholds in CFTC Regulation 4.5 and 4.13(a)(3).
The no-action letter responds to concerns expressed to the Staff regarding the difficulties that could be faced by operators of Funds of Funds that have been relying on guidance from the Division of Swap Dealer and Intermediary Oversight stating that that they may continue to rely on Appendix A until the Commission adopts revised guidance. Part 4 of the CFTC Regulations formerly included an Appendix A, which described six factual situations in which a Fund of Funds would be in compliance with the de minimis commodity interest thresholds in CFTC regulation 4.13(a)(3); Appendix A was removed from Part 4 of the CFTC Regulations in February 2012. The no-action relief is designed, in part, to respond to concerns expressed by industry groups and counsel for operators of Funds of Funds that differences between the guidance in Appendix A and guidance for Fund of Funds operators subsequently adopted to replace Appendix A could cause an operator of a Fund of Funds to have to register as a CPO even though there has been no change in the Fund of Funds’ exposure to commodity interests.
The no-action relief is subject to the following conditions:
- the entity claiming the relief structures its operations in whole or in part as a CPO of one or more Funds of Funds;
- the Fund of Funds with respect to which the CPO is claiming the relief (the “Investor Fund”) does not have direct commodity interest positions that would exceed the thresholds specified in CFTC Regulation 4.5 or 4.13(a)(3)(ii)(A) or (B);
- the entity claiming the relief does not know and could not have reasonably known that the Investor Fund’s indirect commodity interest exposure exceeds the de minimis commodity interest thresholds specified in CFTC Regulation 4.5 or 4.13(a)(3)(ii)(A) or (B), calculated either directly or through the use of Appendix A; and
- the Investor Fund is either a registered investment company or complies with the conditions in CFTC Regulation 4.13(a)(3)(i)(Securities Act exemption), (iii)(investor standards) and (iv)(prohibition on marketing as a commodity trading vehicle).
Reliance on the no-action relief is further conditioned on submitting to the Staff by December 31, 2012 a claim of relief stating (i) the name, main business address and telephone number of the operator; (ii) the name of the Investor Fund; and (iii) that the operator is the CPO of the Investor Fund.